Inventory management is becoming increasingly important in today's growing economy. New products are continuously being developed and placed in the market for consumer purchase. Although this growth provides consumers with more choices for selecting various goods and services, businesses (e.g., retailers, wholesalers, etc.) are tasked with managing this growing inventory.
To manage growing product inventories, businesses have implemented perpetual type inventory management systems, which are systems that use Point Of Sale (POS) data on products sold, invoicing data, and historical data on inventory audits or cycle counts (e.g., periodic inventory counts of products) to determine the inventory that exists within the walls of a retail store. POS data generally refers to data generated at a checkout system (i.e., cash register). Based on the inventory level within the retail stores, products may be reordered from a manufacturer. Alternatively, the manufacturer and retailer may have an agreement that directs the manufacturer to preemptively deliver products according to the terms of the agreement. Ideally, inventory is replenished in a manner such that inventory arrives at the retail store just before existing stock levels are exhausted.
Although perpetual inventory management systems alleviate some of the burden in managing large inventories, they employ a management that injects inaccuracies in cycle counts, POS scanning data, redundant re-ordering, misdirected shipments, and/or unusual sales velocity (i.e., the sale of products that take place either too fast or too slow). The result is physical (actual) inventory out-of-stock levels as high as 11-12 percent or even much higher for specially promoted products or products that are closely monitored for safety purposes (e.g., products with expiration dates).
Another shortcoming associated with perpetual inventory management systems includes inventory shrinkage, also described as the reduction of inventory due to non-sale circumstances. For example, shrinkage may occur at any point in a supply chain, stemming from invoice errors, vendor fraud, misdirected shipments, retail employee theft and customer theft. If inventory is computed as described above (i.e., using perpetual inventory management techniques), shrinkage rates (amounting to several percent of sales) can cause divergence of theoretical (i.e., inventory that is proposed or planned) and physical inventory. Another problem with perpetual inventory management systems is the uncertainty associated with the effectiveness of product promotions. For instance, if the relationship between price and inventory velocity, known as price elasticity, is not well understood, promotions can cause an out-of-stock condition that negatively impacts customer satisfaction and loyalty. Alternatively, promotions can fail to achieve a desired reduction of inventory when too much inventory is ordered and the price elasticity is poorly estimated or measured.
Further, another related problem with conventional inventory management systems is associated with misplaced inventory on a retail shelf or similar support unit. Product manufacturers devote large sums of money to market certain products to consumers. In some instances, this marketing may include combating a competitor that manufacturers a similar product. Because retailers generally desire to present as much inventory as possible for sale to the customer, some employees may fill a void on a shelf dedicated for an out of stock product with related products. In some instances, the related products may include products produced by a manufacturer's competitor. This may result in lost sales for the manufacturer and, in some cases, reduction in customer satisfaction. This may also violate agreements between retailers and manufacturers or their distributors.
To address the shortcomings of conventional inventory management systems, businesses have begun to incorporate wireless identification devices to assist in managing the inventory of products. This advancement contemplates attaching Radio Frequency Identification (RFID) tags on products during manufacture or when the products are stored in a warehouse. Each RFID tag includes an Integrated Circuit (IC) that enables the tag to have a unique identification number. Therefore, when a product is taken from a warehouse and placed on a retail shelf, for example, the products may be scanned to give a comprehensive inventory. Further, RFID tag technologies have been contemplated in providing distributed inventory management between a manufacturer and a retailer. For example, a manufacturer may be alerted through the Internet each time a product is sold at a retailer using the information stored in the product's RFID tag. The manufacturer may then use this information to forecast replenishment schedules with the retailer to prevent an out of stock situation.
Although the above mentioned RFID tag developments help overcome some of the shortcomings of conventional perpetual inventory management systems, these developments lack the capabilities to provide real, or near real, time comprehensive inventory management in almost any point of a supply chain. Accordingly, there is a need to provide an intelligent inventory management system to provide a comprehensive view of the inventory within a particular environment.